Traverse wary of Spectrum Health bid
Munson Healthcare’s 310 corporate members usually meet once a year to decide who should sit on the system’s various boards of directors and to learn about health care issues.
This year, however, their meeting could be anything but business-as-usual, as the members may be asked to make a historical decision on whether Munson, the largest employer in Traverse City, should join Grand Rapids’ Spectrum Health.
The Munson and Spectrum boards have not yet indicated whether they intend to proceed with a merger of the two nonprofit health systems. Due diligence began in January and could conclude as soon as May. But the corporate members, who include members of Munson’s boards, community leaders and interested citizens, hold the final say.
Spectrum Health President and CEO Rick Breon is scheduled to be on hand for a corporate member informational meeting on Tuesday at Traverse City Golf & Country Club.
“The focus is more just so they have a name and face to put together,” Breon said. “I’m probably going to be there to respond to inquiries they would have.”
The members are hardly unanimous in their views about turning over the keys to the 3,800-employee health system to Spectrum.
“There is disagreement in the community,” Traverse City Area Chamber of Commerce President & CEO Doug Luciani said. “Some prominent members of the community have come out and said they think it is a bad idea. There is a concern about losing local control of our No. 1 employer. Some people are very positive about it. Most figure what will be, will be.”
Debate has been lively around the glistening blue Grand Traverse Bay, with community and business leaders voicing concerns about possible layoffs, losing administrative control to Grand Rapids and the possibility of a river of cash flowing down U.S. 131 into Spectrum Health coffers.
Supporters say Munson could leverage Spectrum Health’s credit rating to borrow money to upgrade facilities and equipment. The hospital could bolster physician recruiting through Spectrum’s ties to Michigan State University’s College of Human Medicine in Grand Rapids.
Northwestern Bank President & CEO Scrub Calcutt declined an interview, but released a copy of a letter he sent to Munson leadership in February. Among many points, Calcutt states that he believes doctors are attracted by the beauty of the Grand Traverse area and by Munson’s independent status. He also argues that Munson’s strong financial position means it “doesn’t need Spectrum’s borrowing power.”
T. Michael Jackson, a corporate board member, said his biggest concerns are the fate of Munson’s strong history of local control and a lack of details.
“The hospital has the responsibility to them (corporate board members) to explain what’s going on, mostly importantly to say what are the benefits for this community from this change in control,” Jackson said. “That, to date, has not been spelled out.”
Added Traverse City City Commissioner Jim Carruthers: “I don’t really understand why we would merge with a large downstate corporate hospital system when Munson’s doing just fine on its own. The old adage ‘If it isn’t broken, why fix it?’ keeps coming up.”
Paul Shirilla, Munson vice president and general counsel, said state law requires that any major change such as a merger or a sale pass muster with the corporate members. The proposal under discussion would replace hundreds of corporate members with one: Spectrum Health.
“The structure of a combination of Spectrum and Munson that is currently being discussed would require an amendment to the articles of incorporation, thus this group of corporate members would need to approve,” Shirilla explained. “That will be dependent on whether or not the board decides they want to enter into this arrangement with Spectrum.”
Munson Medical Center President & CEO Ed Ness said the 391-bed hospital has long-range plans to build a cancer center and an addition for inpatient beds. But the system’s borrowing capacity is inadequate to tackle both projects, according to its Web site.
In a lengthy question and answer post on its Web site, Munson states that those projects plus other capital expenditures and the cost of recruiting specialists place the health care system’s capital needs at $350 million over the next five to seven years. The system, with revenue of $475.6 million and a margin of 5 percent in the 2009 fiscal year, today carries debt of $140 million.
“The available capital for projects if we are to maintain a Moody's A rating is $210 million. In our current configuration, we have a shortfall of $140 million,” according to the Web site.
“Munson Healthcare is a Moody's A bond rated hospital, placing its borrowing strength in the top 10 percent of hospitals nationally. Spectrum Health is Moody's AA rated, ranking it in the top 1 percent nationally. Through a partnership with Spectrum, Munson Healthcare could obtain capital at the lowest possible interest rate.”
Added Breon: “There’s no question that if we come together and they are part of a double-A rated group, their borrowing capability has been enhanced.”
Constructing a $40 million cancer center “would allow us in the community to bring together physicians, infusion therapy and radiation therapy into a more comprehensive, coordinated cancer center,” Ness said. The system needs other technology updates, he added, as well as more inpatient capacity.
U.S. Census Bureau estimated growth in Grand Traverse County at 10.6 percent between 2000 and 2009, pegging the population at 86,333 and making it the second fastest-growing county in Michigan. Munson serves 24 northern Michigan counties.
“Our community is continuing to experience growth for health care services, including inpatient services, and our facility will be reaching, in the near future, capacity issues,” Ness said.
He said Munson would like to build an addition, which was described on the Web as housing 100 beds at a pricetag of $100 million.
“In some ways, we have a higher standard to provide that capacity than some hospitals downstate because there isn’t another hospital in town,” Ness said. “If we’re full, it isn’t like a patient could be transferred to a hospital five miles away.”
Munson owns a small percentage of Class B stock in Priority Health, the health insurer majority-owned by Spectrum Health. Priority Health was responsible for about half of Spectrum Health’s $2.6 billion in revenue for the 2009 fiscal year.
Shirilla said Munson’s board has given itself an informal deadline of May to avoid dragging out due diligence.
“It’s a unique decision. It’s never happened before, so we have communicated with the corporate members. There’s a lot of information being provided in response to questions,” he said.
Still, many fiercely loyal, independent and proud residents of Traverse City, who rely on Munson for health care and for jobs, remain wary.
“I like the fact that we have a great nonprofit hospital that’s locally controlled by the people, for the people,” Carruthers said.
“It’s not that we distrust downstate. It’s more that we believe in ourselves. We don’t feel outsiders should control us. Our town believes in itself, and we believe that we can hold our own and manage our systems and maintain them to our liking and to our needs.”